Peabody, Arch announce plans to merge Powder River Basin mines

GILLETTE — Two of the world’s largest coal producers have announced a deal to combine operations of their flagship Powder River Basin mines.

Under terms of a joint venture agreement, Peabody’s North Antelope Rochelle mine and Arch’s Black Thunder mine will be consolidated in what Peabody calls “an extraordinary joint venture.”

NARM and Black Thunder historically have been among the world’s top producing thermal coal mines. In 2018, the two mines combined produced nearly 170 million tons of coal.

The deal also consolidates the companies’ western coal mining operations and includes five PRB mines and two in Colorado. Along with NARM and Black Thunder in Wyoming, Peabody’s Rawhide and Caballo mines will be part of the joint venture, along with Arch’s Coal Creek mine. In Colorado, the deal includes Peabody’s Twentymile and Arch’s West Elk mines.

Overall, the mines produced about 206 million tons of coal in 2018 and the joint venture would give them access to about 2.5 billion tons of reserves.

The joint venture, which will split ownership 66.5% for Peabody and 33.5% for Arch, will be operated by Peabody and is expected to create an estimated $820 million in net value for the companies, said Glenn Kellow, Peabody president and chief executive officer.

It also will allow Peabody and Arch to take advantage of what Kellow called “synergies” in streamlining operations that will provide an estimated savings of about $120 million a year for a decade.

“Simply put, this is about our combined operations strengthening our competitiveness with natural gas and subsidized renewables and we believe this will create substantial value for our customers, shareholders and our many stakeholders,” Kellow said in a statement to the News Record.

Those synergies include efficiencies in rail contracts, consolidating their equipment fleets, warehousing and taking advantage of Peabody’s low-cost model of operations with Arch’s high-quality product, he said.

Asked for more specifics on other efficiencies and how the joint venture could affect the 3,300 people who work at the mines, the companies were vague.

“The overwhelming component of synergies would be operating in nature,” Kellow said during a Wednesday morning conference call announcing the deal.

In a statement to the News Record after the call, he said making coal more competitive in the United States provides more job security for workers.

“We are looking to create and deliver more value together than either company could do alone,” he said. “We believe a strong operating complex will provide greater job security and opportunities for employees.”

Peabody said in a statement that it expects the hourly workforce at the mines to remain constant with possibly some minor changes in salaried staffing levels, including administration.

“The fact is, both companies have talented workforces and we will work to preserve that pool,” the company said.

While the joint venture still has at least months of consideration for government approval, if it is approved, those “synergies” likely will include some paring down of the workforce, said Shannon Anderson, a staff attorney for the Powder River Basin Resource Council.

In reacting to Wednesday’s announcement, she said “synergies” sounds a lot like “people” to her.

“When you say ‘synergies,’ that’s cost reduction,” she said. “So, what costs are you reducing? It’s either costs with the workforce or something else.”

While optimistic the companies make a strong case for consolidating their Western coal operations, whether the joint venture will be approved is not guaranteed, said John W. Eaves, Arch Coal CEO, during a Thursday morning conference call.

“We don’t have any idea how long it will take,” he said about the approval process, but he anticipates it will be “some months.”

While there has been pushback in the past to consolidating operations in the Powder River Basin and anti-trust concerns, the landscape for coal is much different now, Eaves said.

With continued pressure from cheap natural gas and subsidized renewable energy, coal has fallen from making up about 50% of the U.S. power generation portfolio about a decade ago to about 25% now.

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